Liquidators of Lehman Bros. Australia Ltd. v. Lehman Bros. Special Financing Inc. (In Re Lehman Bros. Holdings Inc.) , 697 F.3d 74 ( 2012 )

11-2967-cv (L)
In re Lehman Bros. Holdings Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2011
(Argued: May 18, 2012 Decided: October 4, 2012)
Docket Nos. 11-2967-cv (Lead), 11-2992-cv (CON)
IN RE: LEHMAN BROTHERS HOLDINGS INC.,
Debtor.
LIQUIDATORS OF LEHMAN BROTHERS AUSTRALIA LIMITED, LIQUIDATOR,
DANTE NOTEHOLDERS,
Appellants,
v.
LEHMAN BROTHERS SPECIAL FINANCING INC.,
Appellee.
Before:
JACOBS, Chief Judge, and
CHIN and DRONEY, Circuit Judges.
Appeal from a judgment of the United States
District Court for the Southern District of New York
(McMahon, J.) dismissing appellants' appeal from an order of
the United States Bankruptcy Court for the Southern District
of New York (Peck, Bankr. J.) denying without prejudice
their motions for leave to intervene in an adversary
proceeding.
VACATED and REMANDED.
ANDREW K. GLENN, Kasowitz, Benson, Torres &
Friedman LLP, New York, New York
(Eric Foster Leon, Kirkland & Ellis
LLP, New York, New York, on the
brief), for Appellants.
RICHARD W. SLACK (Ralph I. Miller, Peter
Gruenberger, Meredith B. Parenti, on
the brief), Weil, Gotshal & Manges
LLP, New York, New York, for
Appellee.
PER CURIAM:
Appellants Liquidators of Lehman Brothers
Australia Limited ("LB Australia") and Dante Noteholders
appeal from a judgment of the United States District Court
for the Southern District of New York (McMahon, J.)
dismissing their appeal from an order of the United States
Bankruptcy Court for the Southern District of New York
denying without prejudice their motions for leave to
intervene in an adversary proceeding. We hold that in the
circumstances here the bankruptcy court's denial of
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appellants' motions to intervene was a final appealable
order. Accordingly, we vacate and remand.
BACKGROUND
The relevant facts are largely undisputed. In
2002, Lehman Brothers International Europe ("LBIE") created
the "Dante Programme" by which certain special purpose
entities issued notes of collateralized debt obligations
(the "Notes"). The Notes were purchased by appellants as
well as other investors. The same special purpose entities
entered into a swap agreement with appellee Lehman Brothers
Special Financing Incorporated ("LBSF") whereby LBSF agreed
to pay amounts due under the Notes in exchange for certain
interests in the collateral that secured the Notes (the
"Collateral").
Appellants and LBSF had competing interests in the
Collateral. Under the transaction documents governing the
Dante Programme, in certain circumstances appellants had
priority with respect to the Collateral, and in other
circumstances LBSF had priority.
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On September 15, 2008, Lehman Brothers Holdings
Incorporated ("LBHI") and LBSF filed for bankruptcy
protection pursuant to Chapter 11 of the Bankruptcy Code.
According to appellants, the bankruptcy filings constituted
events of default giving them priority with respect to the
Collateral.
On September 14, 2010, LBSF commenced an adversary
proceeding in the bankruptcy court against the trustees of
the Dante Programme and the issuers of the Notes (the "Dante
Adversary Proceeding"), seeking declaratory relief with
respect to priority in the Collateral. LBSF filed adversary
proceedings against many other defendants as well,
apparently to preserve certain claims prior to the
expiration of the applicable statute of limitations.
LBSF moved to stay the Dante Adversary Proceeding
(as well as the other proceedings) to pursue alternative
dispute resolution. On October 20, 2010, the bankruptcy
court granted a stay until July 20, 2011. Thereafter, the
bankruptcy court extended the stay three times, through
January 20, 2013, subject to further extensions. See In re
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Lehman Bros. Holdings Inc., No. 08-13555, ECF No. 29506, at
3. The stay order provided that only the debtors and named
defendants could apply to lift the stay. As appellants were
not parties to the Dante Adversary Proceeding, they could
not challenge the stay order.
On January 23 and 25, 2011, Dante Noteholders and
LB Australia moved respectively to intervene in the Dante
Adversary Proceeding pursuant to 11 U.S.C. § 1109(b), Rule
24 of the Federal Rules of Civil Procedure, and Rule 7024 of
the Federal Rules of Bankruptcy Procedure. Appellants
argued that they should be allowed to intervene because they
were parties in interest, their interest in the Collateral
was being affected by the proceedings, and they would be
bound by any judgment rendered against their trustee, who
they claimed was not adequately representing them.
At a hearing on February 16, 2011, the bankruptcy
court orally denied the motions to intervene without
prejudice, concluding that the motions to intervene were in
actuality motions to vacate the stay. The court also held
that appellants failed to comply with Rule 24(c) of the
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Federal Rules of Civil Procedure, which requires an
intervention motion to be accompanied by a proposed
pleading. On February 18, 2011, the bankruptcy court issued
a written order denying the intervention motions without
prejudice.
Appellants appealed to the United States District
Court for the Southern District of New York. LBSF moved to
dismiss the appeal, arguing that the bankruptcy court's
denial of intervention was not a final appealable order.
The district court agreed, and on June 21, 2011, it
dismissed the appeal for lack of appellate jurisdiction.
The district court reasoned that the bankruptcy court's
order, issued without prejudice, did not resolve the
intervention motions on the merits, and that appellants
could renew their motions upon the lifting of the stay. The
district court found that appellants faced no risk of
prejudice because no substantive ruling would be made in the
underlying proceedings until the stay was lifted.
This appeal followed.
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DISCUSSION
The district court's determination that the
bankruptcy court's order was not appealable is a conclusion
of law that we review de novo. See Royal & Sun Alliance
Ins. Co. of Can. v. Century Int'l Arms, Inc., 466 F.3d 88,
92 (2d Cir. 2006); Mentor Ins. Co. (U.K.) v. Brannkasse, 996
F.2d 506, 513 (2d Cir. 1993).
We hold that in the circumstances here the
bankruptcy court's denial of appellants' motions to
intervene was a final appealable order.
First, while we have not previously addressed the
appealability of denials of intervention in the bankruptcy
context, we have held as a general matter that denials of
intervention are final appealable orders. See Bridgeport
Guardians, Inc. v. Delmonte, 602 F.3d 469, 473 (2d Cir.
2010); MasterCard Int'l Inc. v. Visa Int'l Serv. Ass'n, 471
F.3d 377, 384 (2d Cir. 2006); Ionian Shipping Co. v. British
Law Ins. Co., 426 F.2d 186, 189 (2d Cir. 1970) (noting a
"practical rather than a conceptual" view of finality
(internal quotation marks omitted)). See generally 7C
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Charles Alan Wright et al., Federal Practice and Procedure §
1923 (3d ed. 2012). These decisions are based on the
reasoning that the denial of the opportunity to be heard
concludes the matter for all practical purposes for the
would-be intervenor. See In re Marin Motor Oil, Inc., 689
F.2d 445, 447-48 (3d Cir. 1982) (analyzing appealability of
denials of intervention under the old 28 U.S.C. § 1293(b),
now superseded by 28 U.S.C. § 158); 7C Charles Alan Wright
et al., Federal Practice and Procedure § 1923.
Second, in the bankruptcy context, the standard
for finality is more flexible than in other civil
litigation. See In re Pegasus Agency, Inc., 101 F.3d 882,
885 (2d Cir. 1996); In re Chateaugay Corp., 922 F.2d 86, 90
(2d Cir. 1990) (noting the "pragmatic approach to finality"
in the bankruptcy context). See generally 16 Charles Alan
Wright et al., Federal Practice and Procedure § 3926 (2d ed.
2012). Because bankruptcy cases frequently entail
protracted proceedings involving many parties, finality is
viewed functionally, focusing on pragmatic considerations
rather than on technicalities. See In re Amatex Corp., 755
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F.2d 1034, 1039 (3d Cir. 1985); see also In re Marvel Entm't
Grp., Inc., 140 F.3d 463, 470 (3d Cir. 1998) ("A finality
determination in a bankruptcy appeal involves consideration
of such factors as the impact of the matter on the assets of
the bankruptcy estate, the preclusive effect of a decision
on the merits, and whether the interests of judicial economy
will be furthered." (internal quotation marks omitted)).
Third, the circumstances here call for a pragmatic
approach. The Dante Adversary Proceeding has been stayed
since October 2010 and the stay will remain in place until
January 20, 2013, with the possibility of still further
delays. Appellants have not been permitted to intervene,
nor can they even ask again for leave to intervene as long
as the stay is in place. Yet, they contend that the stay is
prejudicing their interests. Although the bankruptcy court
denied appellants' motions without prejudice, they may renew
their motions only upon the lifting of the stay. Hence, the
bankruptcy court's order is tantamount to a denial with
prejudice, as appellants are effectively being denied the
opportunity to argue that the stay should be lifted.
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Crucial bankruptcy negotiations are ongoing, and the
potential intervenors have reason to expect that, unless
their appeal from the denial of their motions to intervene
is considered, they may ultimately arrive at the scene of a
fait accompli, or be foreclosed altogether from proceedings
that they may be entitled to join.
Of course, we express no view as to the merits of
appellants' application to the bankruptcy court for leave to
intervene. We hold only that the bankruptcy court's order
was a final appealable order that should have been
considered by the district court on the merits.
CONCLUSION
For the foregoing reasons, the judgment of the
district court is VACATED and the case is REMANDED with
instructions to reinstate the appeal.
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